Economy
While the controversy rages over the GDP growth of 5.01% in Q2 of 2021, Nigerians, especially the managers of the economy, should bear in mind that the macroeconomic challenges reflecting in spiraling inflation, weakening currency, forex market illiquidity, high unemployment and rising debt profile are worrisome metrics that can wipe out whatever gains recorded in the GDP growth.
By Goddy Ikeh
THE country’s Gross Domestic Product growth of 5.01% in Q2 of 2021 announced by the National Bureau of Statistics, NBS, has been described by some experts as the parting shot of the retired CEO of the NBS, Yemi Kale, but the controversy generated by this GDP growth may linger for some time. Unfortunately, this development has further revealed the worrisome trust deficits between the government, some institutions of government and the people.
In August 2021, the NBS announced that Nigeria’s Gross Domestic Product, GDP, grew by 5.01% (year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth, following the negative growth rates recorded in the second and third quarters of 2020. The NBS explained that the Q2 2021 growth rate was higher than the -6.10% growth rate recorded in the second quarter of 2020 and the 0.51% recorded in Q1 2021 year on year, indicating the return of business and economic activity near levels seen prior to the nationwide implementation of COVID-19 related restrictions.
It noted that the steady recovery observed since the end of 2020, with the gradual return of commercial activity as well as local and international travel, accounted for the significant increase in growth performance relative to the second quarter of 2020 when nationwide restrictions took effect.
“Year to date, real GDP grew 2.70% in 2021 compared to -2.18% for the first half of 2020. Nevertheless, quarter on quarter, real GDP grew at -0.79% in Q2 2021 compared to Q1 2021, reflecting slightly slower economic activity than the preceding quarter due largely to seasonality.
“In the quarter under review, aggregate GDP stood at N39,123,713.32 million in nominal terms, higher than the second quarter of 2020 with aggregate GDP of N34,023,197.60 million, indicating a year on year nominal growth rate of 14.99%. The nominal GDP growth rate in Q2 2021 was higher than -2.80% growth recorded in the second quarter of 2020 when economic activities slowed sharply at the outset of the pandemic.
“The Q2 2021 nominal growth rate was also higher than 12.25% growth recorded in Q1 2021,” the NBS said.
According to NBS, the Nigerian economy is classified broadly into the oil and non-oil sectors and that in the second quarter of 2021, average daily oil production stood at 1.61 million barrels per day (mbpd), which is -0.19mbpd lower than the average daily production of 1.81mbpd recorded in the same quarter of 2020 and -0.10mbpd lower than the 1.72mbpd recorded in the first quarter of 2021.
It added that real growth of the oil sector was –12.65% (year-on-year) in Q2 2021 indicating a decrease of –6.02% points relative to the growth rate recorded in the corresponding quarter of 2020. Growth decreased by – 10.44% points when compared to Q1 2021 which was –2.21%. For the first half of 2021, real GDP was recorded at -7.13%, compared to -0.80% for the first half of 2020, the performance reflecting lower oil output.
Quarter-on-quarter, the oil sector recorded a growth rate of -20.35% in Q2 2021. The Oil sector contributed 7.42% to total real GDP in Q2 2021, down from figures recorded in the corresponding period of 2020 and down compared to the preceding quarter, where it contributed 8.93% and 9.25% respectively.
According to the report, the non-oil sector grew by 6.74% in real terms during the reference quarter (Q2 2021). The Q2 2021 growth rate was higher by 12.80% points compared to the rate recorded in the same quarter of 2020 and 5.95% points higher than the first quarter of 2021.
“During the quarter, the sector was driven mainly by growth in Trade, Information and Communication (Telecommunication), Transportation (Road Transport), Electricity, Agriculture (Crop Production) and Manufacturing (Food, Beverage & Tobacco), reflecting the easing of movement, business and economic activity across the country relative to the same period a year earlier.
“In real terms, the Non-Oil sector contributed 92.58% to the nation’s GDP in the second quarter of 2021, higher from shares recorded in the second quarter of 2020 which was 91.07% and the first quarter of 2021 recorded as 90.75%,” the NBS said.
This latest data by the NBS was received with mixed reactions by many Nigerians who find it difficult to accept such a figure in the face of daunting security and economic challenges in the country.
Some economists, who spoke with the News Agency of Nigeria (NAN) were impressed with the figure announced by the NBS, while others had their reservations. For instance, Sheriffdeen Tella, Professor of Economics at the Olabisi Onabanjo University Ago-Iwoye, in Ogun, said that the GDP figures represented good news, “if the figures were true”.
“A GDP growth of 5.01 percent is a strong indicator for improved welfare. But the reality on ground does not support such growth rates.
“However, the sub-sectors identified for the growth, except, transportation, cannot impact seriously on employment and income whereas agriculture and industrial sectors that would impact on these recorded slow and negative growth respectively.
“Actually, the fact is that the growth witness emanated largely from oil sector with improvement in oil prices since the beginning of the year.
“The government still needs to address issue of security for agriculture and industries to pick up,” Tella said.
Another economist, Hassan Oaikhenan, Professor of Economics at the University of Benin, Benin-City, is worried that the GDP growth data do not reflect the reality on ground.
He urged government to come up with pragmatic and decisive policies that are geared towards sourcing raw materials for the manufacturing sector from within.
He said the agricultural sector needed to be harnessed to provide the raw materials needed by the industrial sector.
“There is need for pragmatic and actionable policy actions to create linkage between the industrial and agricultural sectors,” he said.
For Prof Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research, CEPAR, University of Lagos, the GDP growth figures meant the economy had opened up from the COVID-19 induced dislocations.
He noted that in a comparative basis, improvements in services were expected in view of the greater resort to ICT-induced service enhancement in the economy.
“However, the prevailing insecurity challenges in the country is a serious drag to output growth. If insecurity challenges are confronted headlong, economic growth in the coming quarters will be enhanced,” Nwokoma said.
For the Director-General of Lagos Chamber of Commerce and Industry, LCCI, Chinyere Almona, the sustenance of the growth rate is what should concern Nigerians now. She cautioned that the country must watch and respond appropriately to the major threats to this growth performance such as the third wave of COVID-19 infections which could lead to restrictions of movement.
Local media reports quoted her as warning that the rising spate of insurgency, banditry, kidnapping, and the persistent farmer-herder conflicts as factors that could decelerate growth in the coming quarters.
Reacting to rise in GDP growth rate, an Economist and former Director General of the LCCI, Muda Yusuf, said that the 5.01 percent GDP growth (year on year) was a welcome development, but that there was need to fix issues around regulatory environment, tax administration and the multitude of levies imposed on businesses at all levels of government.
Yusuf also called for reforms in the nation’s foreign exchange policies, ports infrastructure, and other structural bottlenecks to productivity in the economy.
“There are still worries about the macroeconomic challenges reflecting in spiraling inflation, weakening currency, forex market illiquidity and rising debt profile among others.
“The security situation remains a major source of risk inhibiting investments whether domestic or foreign,” the report by the Daily Sun newspaper quoted Yusuf as saying in August. Yusuf also cautioned against celebrating the GDP growth numbers, since the impact of the GDP growth on citizens’ welfare and the productivity in the investment environment are crucial, noting that those were the metrics that matter most, ultimately. He, however, opined that the 5.01 percent GDP growth is largely an indication of the restoration of economic activities and that the Nigerian economy is still essentially in a recovery phase.
Another economist Adori Ochai says that the sudden rise in GDP shows the potential in the Nigerian economy and that given the right policy it can performance its best for the good of the people. “Yes, we have faced difficult times with the decline in economic statistics, that fall in the international price of oil, banditry and terrorism, impacts of Covid-19, are all negative factors in the growth of the economy. The figures are not in any way fake, the GDP will always grow with stable international oil prices couple with the Covid-19 vaccines which is enabling economic activities,” Ochai told Realnews.
He disagreed that there was slow growth in virtually all sectors that drive the GDP and maintained that “productivity is still going on, the economy has never come to a halt, at least, you have been going to work- that contributes to the economy. Like I said above, oil contributes to the economy a lot, and the price has been stable for a while. Also, the stable foreign reserves has built investors’ confidence on the economy. And above all, the government borrowing to invest on infrastructure is adding much to the GDP.
Speaking on the effect the change in the leadership at the NBS will have on the data churned by the NBS, Ochai said that it would have nothing to do with statistics, “the calculations of the GDP, which is total number of goods produced within an economy is a statistical figure gotten all over the country with specialists doing the job, not necessarily the leadership of the NBS”.
On the issue of inflation and its effect on the GDP and the economy, he noted that inflation is an unnecessary evil, but “what that means is that it triggers productivity, so when productivity is triggered by inflation, the GDP will grow”. Ochai observed that productivity is not doing badly and that the land border closure could have encouraged local productivity, which is now reflecting on the GDP. On insecurity, he admitted that productivity from the areas affected by insecurity are insignificant contribution to the GDP.
He recalled that the World Bank had earlier predicted a 2% growth of the GDP and that “it is a positive prediction by them, but it has gone beyond their prediction. This is not the first time the Nigerian economy has grown beyond their prediction. You should know that the experts in NBS, CBN, MOF, are more on ground than this foreign bodies. So, who should be more accurate?”
Ochai, however, advised Nigerians who are doubting the current GDP growth rate that the Nigerian economy has the growth potential and that “once that is understood, then they will know that the economy can meet our desire given the right atmosphere”. He also urged the managers of the Nigerian economy not to see this as the end point, “there are still work to be done. Until the economy grows far above the population growth rate, then we are not there. We need a GDP that grows above the population growth rate for the populace to feel the impact.
But the Apapa branch chairman of the Manufacturers Association of Nigeria, MAN, Frank Onyebu, stated in his reaction that though the growth may sound good “when you look at it within the context of the sharp decline of the GDP last year, you will realise that there is nothing much to cheer about”.
According to him, the economy simply improved after a slump. “In real terms, the economy is still struggling. And that is to put it mildly. Aggregate demand is low – very low. And this is not surprising! The high rate of unemployment coupled with the current level of insecurity has had a very negative impact on the purchasing power of most Nigerians. This has adversely affected the manufacturing sector which has to contend with high inventory of finished goods. Most manufacturing companies are struggling – again, that’s putting it mildly. Many companies are in an existential crisis. Some have already shut down altogether. This could only worsen the already bad unemployment situation,” the Daily Sun newspaper quoted Onyebu as saying.
He, however, advised the federal government to stop gloating over what he called “an illusion and rather concentrate on policies and actions that could help the economy in real terms”.
And for Nigerian President Muhammadu Buhari, who had been criticized for the worsening security challenges and poor handling of the economy, it was a cheering news. Femi Adesina, presidential spokesman, said in a statement that President Buhari commended the managers of the economy for their hard work and commitment, urging them to keep at it till the positive development “touches the lives and pockets of the average Nigerian.”
President Buhari noted the decline in real growth in the oil sector in Q2 2021, compared to a year ago, indicating oil production levels at 1.62million barrels per day, compared to 1.67million barrels per day in Q2 2020.
According to him, the lower production output, as well as the volatility in oil prices since the beginning of the COVID-19 pandemic, was responsible for the decline in performance of the oil sector.
The president, however, assured that a combination of recent reforms and efforts were certain to attract new investment to the oil and gas sector, as well as create conditions for more robust levels of growth in the future.
He cited these reforms and efforts to include the Marginal Fields Bid Rounds, the renewed focus on gas development, including the NLNG Train 7 project, and various pipeline construction projects, as well as the passage and assent to the Petroleum Industry Bill, PIB.
”It is gratifying to note that the various policies of the administration, aimed at boosting agricultural production, improving the business environment and investing massively in infrastructure, are beginning to yield fruit.
”Equally gratifying is the complementary news of the steady decline in the rate of inflation, over the last few months.
”The positive effects of the Economic Sustainability Plan (ESP), which helped fast-track the country’s exit from the COVID-induced recession of 2020, continue to be evident, as some of the sectors driving the Q2 2021 growth have benefited or are benefiting from government-led interventions.
”The successful roll-out of vaccines and COVID-19 protocols has also helped to reduce pressures on the healthcare system and the need for a lockdown,” he said.
In her reaction, the finance minister, Zainab Ahmed, said that Nigerians would soon begin to feel the impact of the 2nd quarter GDP growth of 5.01% on the industry, services, and reduction in the unemployment level across the states.
The minister told a news conference in Abuja that the 2nd quarter GDP, which grew by 5.01% (year-on-year) in real terms was the strongest real GDP growth the economy had recorded since Q4 2014. According to her, the latest GDP growth rate has proved that channeling the monies borrowed into the development of the country’s infrastructure. “We are borrowing sensibly and we are investing in rail and other infrastructure,” she said.
While the federal government has every reason to celebrate this cheering news, many economists and stakeholders have warned that with inflation at 17.38 percent, foreign direct investments nosedived in the first half of 2021 to $2.78 billion, down from $7.15 billion in the first six months of 2020 and other indices not looking good, the nation needs to pursue and achieve accelerated, sustainable and inclusive growth that can attract domestic and international capital with its attendant investment multiplier to achieve a GDP level of $1.5trn by 2030 when the nation’s population is estimated to peak at 250 million.
– Sept. 05, 2021 @ 14:34 GMT |
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Tags: Chinyere Almona Daily Sun newspaper Lagos Chamber of Commerce and Industry LCCI NBS
